Here is part of an interview I gave to InvestmentNews on what’s happening at the state legislative/enforcement level regarding the regulation of investment advice to retail investors.
DC plan fiduciaries evidently remain skeptical of ESG investment options within DC plans (public and private). There are myriad explanations for this gap between DC plans and other institutional investors, including, but not limited to, fiduciary duty concerns. In fact, Callan’s excellent ESG/DC plan surveys show fiduciary duty concerns are receding in the minds of fiduciaries. Nevertheless, adoption rates remain relatively low. Here is an update from Callan.
When the Fifth Circuit finally entered its mandate and judgment on June 21, 2018 “vacat[ing] the Fiduciary Rule in toto”, the DOL’s fiduciary rule, as a matter of law, officially became a dead letter. But on remand, the United States District Court for the Northern District of Texas created a narrow opening through which, in theory, the parties who unsuccessfully sought to intervene in the Fifth Circuit could make yet another attempt to save the fiduciary rule. Specifically, the district court issued an Order on June 28, 2018 requiring any party seeking “further relief” to notify the court by July 12, 2018. The court further stated that “[i]f no notice is received, the case will be dismissed with prejudice and without further notice.” The District Court did not specify any “further relief” that it believes could be sought, but the court may want to determine whether the unsuccessful attempted intervenors in the Fifth Circuit will file a petition for a writ of certiorari with the United States Supreme Court. The deadline for the attempted intervenors to do so is July 31, 2018.
The odds that the Supreme Court would grant certiorari to the attempted intervenors are extremely long because, among other reasons, the petitions to intervene were not well founded, as the Fifth Circuit recognized. Nevertheless, the parties, including the DOL, in Thrivent Financial for Lutherans v. R. Alexander Acosta, et al., U.S.D.C. Minn., Civ. A. No. 16-cv-03289, have asked the United States District Court for the District of Minnesota to continue a previously entered stay in that litigation pending the July 12 deadline set by the United States District Court for the Northern District of Texas. While it is highly unlikely that a petition for certiorari by the attempted intervenors will succeed, they may nonetheless seek further review as noted by the parties in Thrivent Financial. It is important, however, to keep in mind that the fiduciary rule should still be deemed vacated, even if a petition for certiorari is filed, because the Fifth Circuit’s mandate remains effective absent a stay, which seems extremely unlikely at this point. We will have a further update on June 12 regarding whether the attempted intervenors respond to the North District of Texas’ Order.
“With the DOL’s fiduciary rule and the new and amended exemptions associated therewith (the “Rule”) officially vacated, many are wondering about the implications of the DOL’s last statement of its (and the IRS’) temporary enforcement policy (FAB 2018-02). In the absence of the Rule we are back to the old “5-part test” for determining whether one is an investment advice fiduciary. If one is an investment advice fiduciary under the 5-part test, the temporary enforcement policy would seem to provide what is the equivalent of a prohibited transaction exemption that did not exist prior to the Rule (for example, to permit the investment advice fiduciary to receive third-party compensation assuming the “impartial conduct standards” are satisfied). Whether the DOL would agree with this analysis in all cases and how long this temporary enforcement policy will be maintained remains to be seen.”